File-Sharing Programs Such as Napster,Kazaa,and IMesh Make It Possible for Individuals

question 11

Multiple Choice

File-sharing programs such as Napster,Kazaa,and iMesh make it possible for individuals to exchange music files over the Internet.On September 3,2003,Universal Music Group announced plans to reduce the wholesale price of music CDs it distributes by an average of 25-30 percent.Which of the following statements is correct regarding the combined effects of the development of file-sharing programs and Universal Music Group's price change in the market for new music CDs?

• A)The equilibrium quantity of CDs would increase; the effect on equilibrium price is uncertain.
• B)The equilibrium quantity of CDs would decrease; the effect on equilibrium price is uncertain.
• C)The equilibrium price of CDs would increase; the effect on equilibrium quantity is uncertain.
• D)The equilibrium price of CDs would decrease; the effect on equilibrium quantity is uncertain.

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Definitions:

Sherman Act

A landmark federal statute in antitrust law that prohibits monopolistic practices and promotes competition.

Conglomerate Merger

A merger in which a company merges with another company that is not a competitor or a buyer or seller to the company.

Sherman Act

A United States antitrust law passed in 1890 that prohibits monopolistic practices and promotes competition.

Horizontal Restraint

A type of anti-competitive practice that occurs between businesses at the same level of the supply chain, such as agreements between competitors to fix prices or divide markets.